ASX overhauls admission rules

From December this year, the ASX will introduce new admission requirements, including a minimum 20 per cent free float and disclosure of two years of audited accounts, that will bring the country’s major exchange in line with international standards.

From 19 December this year, the Australian Securities Exchange (ASX) will apply new requirements for a company’s admission to the market. The refreshing of the admission rules is a significant step for the exchange, which had not updated parts of the framework for some time. The changes address the need to maintain appropriate listing standards to promote investor confidence in the ASX market and align the rules with global trends, including a rule for a minimum 20 per cent free float.

“We’ve been out of kilter with some of the other exchanges around the world in that regard, and we thought it was time to have a rule-based, minimum free-float requirement,” Kevin Lewis, the ASX’s Chief Compliance Officer said.

It is important that directors of companies considering listings on the ASX to be across the rule changes, as well as directors of companies that are already listed, according to Lewis.

“Like other market stakeholders, they have an interest in the reputation and integrity of our market. These changes are about maintaining the standards for listing in our market,” Lewis said.

Other than the free-float requirement, the key listing admission rule changes are:

• Increasing the requirement for profit test entities to have consolidated profits for the 12 months prior to admission from $400,000 to $500,000;


• Increasing the net tangible assets test from $3 million to $4 million;


• Increasing the market capitalisation test from $10 million to $15 million;


• Creating a single tier spread test of at least 300 security holders each holding at least $2,000 worth of securities;


• Requiring asset test entities to disclose to the market two full financial years of audited accounts (also applies to significant entities or businesses acquired in the 12 months prior to applying for admission or that the company proposes to acquire in connection with the listing);


• Standardising the $1.5 million working capital requirement for those admitted under the assets test.

In guidance released last week, corporate regulator the Australian Securities and Investments Commission (ASIC) offered its support for the changes, particularly in relation to historical information disclosure in prospectuses [RG228 Prospectuses: Effective Disclosure for retail investors], including the introduction of a ‘significance’ threshold for the disclosure of historical financial information for business acquisitions.

The changes follow a warning from ASIC earlier in the year to directors on their role in initial public offerings (IPOs). “Directors weren’t involved as much in the oversight process as we would have expected,” ASIC Commissioner John Price told The Boardroom Report in August, summarising results of a review of IPO due diligence. With ASIC on the watch for poor IPO disclosure, it will be imperative for directors to have a clear understanding of the new ASX admission rules as companies prepare for and enter into IPO processes.